Preventing Corruption Fraud

Fraud Awareness Tip of the Week

Corruption fraud schemes account for 33% of all workplace fraud and the average fraud loss due to organizations is $200,000. Industries such as construction, manufacturing, financial and professional services are more susceptible to this type of fraud and far exceed these statistics.

Most corruption fraud schemes occur outside the accounting system and leave little to no paper trail. This type of fraud arises out of relationships between people, therefore in order to detect it, management must often be aware of the personal relationships between employees and outside parties.

There are five types of Corruption Schemes:

Conflict of Interest – Employee has an economic or personal interest in a transaction.

Bribery – Offering, giving, receiving anything of value to influence the outcome of a business transaction.

Illegal Gratuties – Similar to bribery except that something of value after a transaction is completed, rather than influence it.

Kickback – A vendor give part of an over billing to a person who helped facilitate or allow the transaction.

Economic Extortion – Demanding a sum of money (or goods) with a threat of harm (physical or business) if demands are not met.

Some Red Flags

Employees acceptance of inappropriate gifts, travel or entertainment

Indications that an employee is living beyond their means

Sudden unexplained wealth

An employee who makes accelerated payments to a particular vendor

An employee who insists on using a certain vendor

Employee who makes excuses for deficiencies in vendor’s services

A bidder or supplier is not listed on the Internet or in business or telephone directories

A contractor or supplier’s address is a residence or a non-business location

A vendor provides a wide variety of disparate goods and services at high prices

Prevention Tips – Create An Awareness With Your Employees

Incorporate a Code of Conduct and Conflict of Interest policy. Have the employees review the policy annually and sign off on it

Implement a hotline program so your employees, customers and vendors have a confidential source to report concerns or suspicions of fraud